Quotation of the Day…

by Don Boudreaux on February 3, 2013

in Adam Smith, Economics, Prices, Reality Is Not Optional, Scientism, Seen and Unseen, Work

… is from page 295 of Vol. 19 (Ideas, Persons, and Events [2001]) of The Collected Works of James M. Buchanan; specifically, it’s from Jim’s 1996 essay “Adam Smith as Inspiration” (footnote original):

Return, then, to the minimum wage example.  To reject the prediction that increases in the legally imposed wage cause a reduction in employment requires that those who make hiring decisions, presumably either employers or those who act as employing agents for firms, deliberately choose to reduce rather than to increase their economic positions, their own or those of their principals, either before or after the political action that imposes the wage change.[2]  Generalization of this departure from the behavioral uniformity postulated to be the coordinating element which makes the whole structure of market interaction work would, indeed, imply that claims to a scientific status for economics are bogus, and that the market interactions that we observe function without any internally coherent logic of their own.  If this were, indeed, the situation, all of us who classify ourselves as professionals had best turn in our badges and return to the intellectual world as it was before Adam Smith – a world in which economic interests, along with sophisticated arguments in support, are omnipresent, but in which economic analysis, as such, does not really exist.

….

[2] For economist nitpickers, perhaps it is necessary to append two separate qualifying statements.  First, the standard prediction holds under ceteris paribus conditions.  This requirement serves to make empirical testing of the hypothesis almost impossible, but it does not, in any way, affect the scientific standing.

Secondly, the textbook curiosum demonstrating that under conditions of monopsony an isolated firm may increase employment in reaction to an imposed increase in wages requires the assumption that entry of other profit-seeking firms is, somehow, prohibited.  The “competitive monopsonist,” which covers cost only because it purchases labor inputs monopsonistically, will, of course, go bankrupt under an imposed increase in wages.

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